New gas contract with China could be signed on May 9

A more likely scenario is that the contract will be agreed upon in principle during Jinping’s visit and signed when Jinping returns to Russia to attend the BRICS summit in Ufa. Source: Reuters

Gazprom and CNPC are working on finalizing a deal to provide gas from Russia to China via the Altai pipeline. The agreement could be signed during Chinese President Xi Jinping’s visit to Moscow for Victory Day.

According to sources close to Gazprom, the Russian gas giant
intends to sign a contract with China’s National Petroleum Company for
supplying gas through the Altai gas pipeline during Chinese President Xi
Jinping's visit to Moscow for the celebration of Victory Day. The deal, which
was first proposed last November, is Russia’s second major commitment to China,
after the agreement to provide gas via the Power of Siberia pipeline, signed in
May 2014.

"[Gazprom Vice President Alexander] Medvedev said that he
will try to sign the contract (during the May 9 visit)," a source close to
Gazprom told Vedomosti. However, the source doubts that the sides will reach
agreement on all the details of the contract by this time. According to the
source, a more likely scenario is that the contract will be agreed upon in
principle during Jinping’s visit and signed when Jinping returns to Russia to
attend the BRICS summit in Ufa, which will take place July 8-10.

The framework agreement for supplying gas to China via the Altai
pipeline was signed in Beijing in November during the APEC Summit, in the
presence of Jinping and Russian President Vladimir Putin. According to the
framework agreement, China intends to import 30 billion cubic meters of gas
annually from deposits in Western Siberia. In November, Gazprom President
Alexei Miller said that the final contract could be signed in mid-2015. Miller
was in China in February to discuss the Altai pipeline deal. He said after the
visit: "The construction of the gas pipeline is very close to beginning.
In terms of commercial negotiations, we are moving with good speed."

In September, Putin said that the Altai pipeline can be
constructed faster than the Power of Siberia, so if the deal is signed soon,
the Altai pipeline project may take priority.

Putin’s spokesman Dmitry Peskov told Interfax on March 18 that
while the Kremlin does not rule out that a contract on gas deliveries via the
Altai pipeline could be signed in May, the Russian side is not set on the May 9
deadline. “As a rule, the signing of contracts is not adapted to specific
dates. Therefore if the contract terms are agreed upon, we cannot rule out its
signing. If they are not, then talks will continue,” Peskov said.

The two sides face competing interests in the pipeline
construction, though. CNPC advisor Zeng Xingqiu told Reuters that while Beijing
is interested in the construction of both pipelines, “the reality is that we
are short of gas on the eastern side (where the Power of Siberia should
arrive), but have surplus supplies on the west (where Altai should arrive).”

Gazprom, however, has more interests in supplying China via
Altai because of the cost of operating existing production capacities in Yamal.
These deposits are currently linked to the European market, but Europe is
reducing its gas imports from Russia. The Power of Siberia will be supplied via
new deposits in eastern Siberia that are not yet online.